Havells (Q1 FY14)

Revenues for the Indian operations in Q1 FY14 grew at paltry 1.6% on yoy basis to Rs10.5bn. The only segment which delivered healthy growth on revenue front was Switchgears, which grew at 14.3% on yoy basis. Industrial slowdown and limited availability of copper (raw material for cables and wires) led to decline revenues for Cables & Wires segment and Lighting segment by 6.1% and 1.1% respectively. High base effect and seasonal factors resulted into slowdown in revenue growth of electrical consumer durables segment to 6% on yoy basis.

Operating profit margin in the standalone business for Q1 FY14 witnessed marginal expansion of 7bps on yoy basis largely attributed to 209bps and 153bps increase in EBIT margin for Lighting and Electrical consumer durables segment respectively. EBIT margin for Switchgears segment contracted by 31bps on yoy basis. 

Revenues (€ terms) from its overseas subsidiary (Sylvania) decreased by 1% yoy, with 1% decline in revenues from both Latin American and European market. Volatile currency in the Latin American market and languishing demand scenario in European region were the key factors for the decline in revenues. Operating profit margin for Q1 FY14 contracted by 145bps to 3.9%. The management expects revenue to grow by 2% and foresees 5.5-6% OPM for Sylvania in FY14. 

The management has guided for 12-14% revenue growth for standalone business in FY14 led by stronger growth in the consumer business, been offset partially by slowdown in the industrial business. Profitability is expected to remain strong on the back of a) higher share of manufacturing v/s outsourcing and b) various initiatives taken by the company to improve efficiency. We have downgraded our estimates for the standalone business to build in slowdown in revenue growth. At current valuations, we believe the stock is fairly valued and recommend Market Performer with revised target price of Rs645.